Barriers to entry for startups striving to secure government contracts

By Stephanie Palmer-Derrien

Wednesday February 6, 2019

Open-source intelligence startup WorldStack has secured $500,000 in seed funding to kickstart the growth of its AI-enabled data-collection and analysis tool.

But, founder and chief executive Dan Holman (pictured above) says there are still barriers to entry for startups striving to secure government contracts.

Founded four years ago by Holman and co-founder Eric Flis, Canberra-based WorldStack is an automated and AI-enabled data-gathering and analysis tool, designed to collate and infer information from various data points available on the web.

The funding has come from angel investors, who have not been named.

Both founders come from a background in cyber security, with Flis specialising in investigations following attacks.

“Eric was very good at running those investigations and finding out where these attacks were coming from,” Holman says.

Through this, they could come up with a hypothesis about who the attackers were and the technology they were using, and ultimately track them over time.

WorldStack’s flagship product, Providence, was built to automate this process.

“We’re very good at finding information online, particularly things people don’t realise are online or don’t want other people to know are online,” Holman says.

Now, the startup is working with the various government departments — although Holman can’t disclose which ones.

But, Providence also has use cases in corporate cyber security, law enforcement and even sectors such as recruitment.

“We see it as an intelligence platform … it can be applied to any sort of industry or vertical you can think of,” he adds.

With 10 staff on board at the moment, WorldStack is “hiring aggressively”, Holman says, with plans to onboard six or seven new staff in sales and project delivery.

Currently, the startup is seeing monthly recurring revenues of about $30,000 a month, but the founders are targeting month-on-month growth of 30%.

“That’s what this raise is going to enable,” Holman says.

Gap in the market

After bootstrapping for three-and-a-half years, WorldStack made the decision to raise after their product-market fit clicked into place.

“We found where the product will fit best,” Holman says.

“There’s a gap in the market, and the existing providers are not satisfying certain things the market wants,” he adds.

“We needed to act on this quickly, but we didn’t have the capital.”

Now they’re trying to deploy the funds quickly enough to keep that momentum going, while also being prudent. The founders haven’t written off raising again, but they would like to avoid it if possible, Holman says.

“Our preference is to try and use that money to build enough of a flywheel of revenue generation that we won’t need to raise again, but we’re not closed to the idea that we’ll have to raise a Series A,” he explains.

“Investment money comes with a compromise,” he adds.

“The focus for us is to stay focused on our mission to help businesses and governments make better decisions, and to help with the security of the nation as well.”

A barrier to entry

“In the private sector, businesses understand they need a network of other businesses helping each other out. In the public sector, ‘there’s a real approach of going it on your own’.”

One of the major challenges WorldStack has come up against is getting government departments to trust new tech from a meagre startup.

The co-founders have invested a lot of time and energy into building those relationships, Holman says.

In the private sector, businesses understand they need a network of other businesses helping each other out. In the public sector, “there’s a real approach of going it on your own”, he adds.

“I’ve worked on the inside of it. There are some very talented people in there, but there’s not enough of them.”

Both at a state and federal level, there are initiatives to encourage the government to mandate more startups, but there’s still a “really strong barrier to entry”, Holman says.

“I’m yet to see, materially, federal government organisations spending deliberately on startups,” he adds.

“Most of the money goes to the big players.”

According to Holman, there’s a culture of minimising risk in government procurement, and that means, while there may be good intentions, those all-important contracts aren’t being signed.

“Nobody has ever been fired for hiring IBM,” he says.

“If something goes wrong with a startup, that’s that person’s head on the block.”

Iterate and pivot

The biggest piece of advice Holman has for other startups is not to lose any time before getting your product out in front of customers.

“Even if you don’t really have anything yet, get feedback on the idea and iterate,” he says.

The first versions of WorldStack were “really ugly”, he admits. But, by taking it to customers the founders got to hear about similar products on the market, and what was wrong with them.

“Instantly, that gave us feedback on the features we needed to focus on first,” Holman says.

That said, founders should also be mindful of when to pivot their product, or create new iterations, and when to stay true to their vision.

WorldStack has been approached by potential customers with requests for slightly altered technologies to suit specific purposes.

“Providence fits in a certain space, but there are a lot of other interesting problems,” Holman says.

“That’s a real challenge in a startup sense. You can’t just pivot and do all these other developments,” he adds.

“Be open to additional opportunities, and if there’s a bigger market than what you’re working on, you seriously need to consider pivoting. You can stay in a market for too long that’s too small.”

For WorldStack, this isn’t a problem at the moment, but in the future “we will have to consider which markets we pivot into”, Holman says.

This article was first published by StartUp Smart.

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